Answer the following questions:

Using the two companies Southwest and United Airlines , you should answer the following questions. Please make sure that you should your work to earn credit.

1. Using the past dividend payout information between 2012 and 2016, compute the growth rate (g) for these companies. Your companies must have complete history of dividend payout during these periods. You can find such information at www.dividendinformation.com. If your company lacks the dividend payout information, you need to select new company (25 points).
2. First, let’s assume that required return (R) is 10% for all these companies. Using R, dividend information, and growth rate (g) from the question 1, compute the stock prices of these companies. Second, let’s assume that required return (R) is 20% for all these companies. Using R, dividend information, and growth rate (g) from the question 1, compute the stock prices of these companies (25 points).
3. Compare your estimated stock prices with actual stock prices as of January 2, 2016. Then tell me whether each stock is undervalued or fair-valued or overvalued based on your estimation. What’s your decision if you hold these stocks? What’s your decision if you don’t hold these stocks? (15 points).
4. Using annual stock price between 2011 and 2016, compute the following returns. For stock price      data, use the closing price of last trading day of the year: (10 points)

            1)    Total Dollar Return for 2012, 2013, 2014, 2015, 2016

            2)    Total Percent Return for 2012, 2013, 2014, 2015, 2016

1. Using annual stock price between 2011 and 2016, compute the following returns. For stock price      data, use the closing price of last trading day of the year: (25 points)

            1)    Arithmetic Average Return

            2)    Geometric Average Return

            3)    Holding Period Return

            4)    2-year forecast Return (Hint: Blume’s formula)

            5)    3-year forecast Return (Hint: Blume’s formula)